Falling Prices Dent Margins of Indian Sponge Makers

With falling steel prices, the sponge iron margins mainly of standalone sponge makers have reduced as the raw material prices have witnessed comparatively less decline.

As per SteelMint analysis, monthly average price gap between iron pellets to sponge P-DRI has dropped sharply to INR 11,300/MT in Mar'20 as against INR 12,300-12,400/MT in Feb'20, considering eastern India's Durgapur market which is one of the major producers of pellet based DRI.

Also, in central India's Raipur market, monthly average conversion spread has moved down by around INR 1,000/MT to INR 11,500/MT in Feb-Mar'20 as against INR 12,400-12,500/MT in Jan'20.

Sponge P-DRI prices fell by INR 1,200-1,600 (USD 16-22)/MT, while pellet prices by around INR 200/MT in a week's duration in major markets of India.

In cost perspective, it is being observed that the sponge P-DRI prices in Raipur should not lower than INR 18,000/MT, which is currently trading at INR 16,800-16,900/MT on ex-plant basis.

Similar trends is being noticed in eastern & southern India markets, where sponge P-DRI is trading at lower price of INR 1,200-1,300/MT in Durgapur & INR 800-1,000/MT in Bellary than the cost of production in standalone plants.

Sources believe, if prices continue to drop further, the producers won't be left with another option but to reduce the production in order to maintain demand-supply chain as in current trends, supply is quite good than the demand.